As investors seek out winning thematic strategies for the year ahead, passive instruments that offer exposure to emerging technologies are seeing strong inflows.
This is to be expected, given the influence of digitalisation on all aspects of society. For example, the drive by businesses globally to innovate and grow in scalable and resilient ways has led Gartner, the research firm, to identify 12 strategic technology trends expected to shape the next 12 months. These include: generative artificial intelligence (AI), data fabric, distributed enterprise, cloud-native platforms, autonomic systems, decision intelligence, composable applications, hyper-automation, privacy-enhancing computation, cybersecurity mesh, AI engineering and total experience.
The adoption of all these technologies and tools, aligned with goals such as improving the customer experience, reducing costs and enabling growth, has the potential to provide compelling opportunities for investors.
Yet for them to capitalise on these, it is essential they understand key market trends, how to tap into these thematics, which strategies fit their portfolios and how to plan for what's next.
To offer these insights, AsianInvestor and Nasdaq brought together three industry specialists at a recent webinar:
- Clarence Chan, Head of ETFs, China Asset Management (Hong Kong) Limited
- Eddie Cheng, Head of quantitative and index business division, Cathay Securities Investment Trust Co Ltd
- Ben Jones, Senior index strategist, index research & development, Nasdaq
Read the key takeaways below and watch the on-demand version here
New tech-led opportunities for investors
- AI, machine learning, robotics, 5G, blockchain, cybersecurity and cloud data are key elements of the digital world, along with the technologies that enable these, such as semiconductors and software services.
- In particular, the shift by companies from physical ways of doing business to a digital world has led to significant cloud transformation.
“We see technology as both an enabler and a driver – generally providing the means to create and make a difference, which ultimately brings lasting progress and transformation to the way we live and operate.”
“More powerful computing capacity and rapid network developments have provided investors with more economical solutions. By using new technologies to solve numerous problems, demand emerges for new areas such as cybersecurity, semiconductors and AI.”
“It is important to be able to track the companies that are building and developing these new technologies from an index standpoint. This creates themes that investors want to access via investment vehicles like ETFs.”
Bringing thematic research and indexes to life
- The Nasdaq index business has evolved over the past 12 to 18 months to reflect the technology trends and evolving needs of investors to access these thematic opportunities.
- One of the approaches is to work with ETF issuers to deliver market strategies, while another is to develop indexes that track companies which provide solutions and products in the emerging technologies space.
- Demand for thematic indexes and the exchange-traded products tracking them has soared, especially for the Nasdaq-100 (NDX), the flagship index, tracking the 100 largest non-financial companies listed on the Nasdaq Stock Exchange.
- There is also an increasing role, across different asset classes, for unique data sets, both structured and unstructured, to create and update the indexes to better reflect the different segments of the marketplace.
“The focus has been to develop and enhance indexes by adding different filters and screens, such as ESG, or option-based strategies, to change the risk profile and the outcome. At the same time, the indexes are not static, and have evolved quickly over the past year or so as new companies have become more prominent.”
“In Hong Kong, a lot of new thematics have emerged, along with niche products being launched to give investors exposure to sectors like semiconductors and online gaming. There has been a shift in Hong Kong from the initial days of traditional products to more trading-oriented exposures.”
“Technology has always been a hot topic in Taiwan – from network application to hardware manufacturing to software development. The NDX has tracked the development of tech companies in Taiwan, providing effective solutions that meet both issuers’ and clients’ needs.”
Tech-related index performance
- Performance has been strong within the broader technology industry – 38% for the Nasdaq global technology benchmarks over the past 12 months.
- This has come from momentum in areas such as semiconductors, with cybersecurity and AI robotics also bright spots over the last two years.
“We see a long runway for these themes, so believe they are just at the beginning of their cycle; we will see strong performance for these themes in the future. These are not fads given the investments that businesses have already made.”
The next big tech trends for 2022 and beyond
- Cybersecurity – since hacking and cyber-crime are going to remain a challenge for the foreseeable future, cybersecurity will continue to play an important role in the digital economy. Annual spending on solutions is expected to surpass $200 billion a year by 2024.
- AI and robotics – the changes triggered by Covid-19 have led to increasing levels of automation, with companies relying on AI and robotics to fill job vacancies.
“On the Nasdaq research desk we are paying attention to a lot of the new tech themes that are emerging, including cybersecurity, AI and robotics, clean energy and digital currencies. However, with any discussion on thematics, we start with the NDX since it offers diversified exposure.”
“Everything is moving to the cloud, so this will be more important for investors going forward. Blockchain is another theme we see potentially developing in the region.”
“Important trends in Taiwan in 2022 will include climate change, energy transition and biotech. In addition, the metaverse embeds many different technologies, so ETF issuers need to work together to structure thematic indices to enable investors to access them for their investment portfolio.”